George Osborne was labelled the “downgraded Chancellor” today and accused of being in “complete denial” over the loss of the UK’s prized AAA credit rating.

Shadow chancellor Ed Balls claimed his opposite number was “just making it up as he goes along” and piled on the humiliation by reciting the Government’s own words on the importance of the rating.

He told the Mr Osborne to get “out of denial” and come up with a new plan for jobs and growth.

“The downgrading of Britain’s credit rating is, in this Chancellor’s own words, humiliating for this Government,” he told MPs.

But Mr Osborne, who arrived in the Commons chamber to answer an urgent question to chants of “resign” from the Labour benches, insisted the downgrade had not brought “excessive volatility” in the markets today.

Ratings agency Moody’s revised downward its verdict on the UK economy late on Friday, putting Mr Osborne under intense pressure.

The Conservatives put the safeguarding of Britain’s credit rating as the top benchmark to judge its economic success.

Mr Balls said: “The first economic test he set himself – now failed by this downgraded Chancellor. And yet he remains in denial, offering more of the same failing medicine when even Moody’s now agree sluggish growth is the problem.”

Mr Balls said the Chancellor must put the national interest before his own political pride.

He added: “He used to say a downgrade would be a disaster, today he says this downgrade doesn’t matter – but he is still warning a further downgrade really would be a disaster.

“It is utterly baffling and illogical – he’s just making it up as he goes along.”

Mr Osborne said: ``This ratings decision is a stark reminder of the debt problems built up in Britain over the last decade and a warning to anyone who thinks we can run away from dealing with those problems.

“And we will not do that. I can report that we have not seen excessive volatility in the markets today.”

He added: “The credit rating is an important benchmark for any country but this Government’s economic policy is tested day in and day out in the markets and it has not been found wanting today.”

The pound came under further pressure against the euro today, dropping to a 17-month low of 1.13, but held firm versus the US dollar at 1.51. It was already at a 31-month low against the greenback after it emerged last week that Bank of England Governor Sir Mervyn King is in favour of more emergency support for the UK economy.

The overseas dominance of the FTSE 100 Index, with an estimated two-thirds of its earnings derived outside the UK, meant the downgrade did not prevent the top flight from rising back towards its recent five-year high.

The Chancellor told MPs that Moody’s had pointed to slow growth in the global economy and the winding down of huge debts as the reasons behind the downgrade.

He accused Mr Balls of being the “architect” of the problems that led to Britain’s economic crisis. “He (Mr Balls) is responsible for the mistakes that got Britain into this economic mess,” he said.